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About Michael J. Miller

Miller, who was editor-in-chief of PC Magazine from 1991 to 2005, authors this blog for PC Magazine to share his thoughts on PC-related products. No investment advice is offered in this blog. All duties are disclaimed. Miller works separately for a private investment firm which may at any time invest in companies whose products are discussed in this blog, and no disclosure of securities transactions will be made.

How Microsoft's Nokia Acquisition Makes It More Like Apple

Microsoft's announcement that it is purchasing the mobile phone division of Nokia will undoubtedly be a game changer in the mobile phone industry given Nokia's historic position in the market and Microsoft's ambitions. But for Windows Phone to emerge as a true third mobile alternative as opposed to an increasingly irrelevant afterthought, the combined company will have to move much more rapidly and become much more open-minded about changes. That's hard for any company, especially one in the midst of a huge acquisition and a departing CEO.

It's easy to see why Microsoft is attracted to Nokia's mobile phone business. Nokia's Lumia line is by far the most successful of the Windows Phone makers and Microsoft's internal forays into the mobile hardware market—Surface and Kin—have been especially unsuccessful. It also fits into outgoing Microsoft CEO Steve Ballmer's vision of a "devices and services" company.

But it's certainly risky. The Nokia purchase seems likely to push away the other Windows Phone makers—HTC and Samsung—and that could only strengthen Android. (While Google owns Motorola Mobility, it seems to have taken a surprisingly hands-off approach.) Still, I wonder if the move makes Samsung and HTC more likely to experiment with other mobile operating systems; Samsung has been one of the main backers of Tizen and said it will ship Tizen-based phones this year, while HTC is reportedly developing a new OS for the Chinese market.

Microsoft's track record with hardware acquisitions has been less than stellar. Recall WebTV. Or Microsoft's purchase of Danger, the mobile phone company that in some ways was a predecessor to Android. (Andy Rubin created and ran Danger, and then after the Microsoft acquisition, started Android.)

The Nokia phone team, a 32,000–person group headed by CEO and former president of Microsoft's Business Division Stephen Elop, is now joining Microsoft. This brings speculation that Elop will be Microsoft's next CEO. That threatens to be a distraction as the Nokia team must work hard just to keep the phones competitive.

And there remains a lot to do on the product front. The Lumia 1020 has a wonderful camera and the basic concepts behind Windows Phone are certainly interesting. But the Windows Phone ecosystem has been far less diverse than the Android competitors and seems to be behind on the latest processors and screens. I'd want to see a new high-end phone with a bigger screen and the top-end processor as soon as possible. A 7-inch tablet, which both Microsoft and Nokia have been rumored to be working on separately, is a necessity for the market as well. How the Nokia hardware engineers deal with the existing Microsoft hardware product teams will be another interesting challenge.

More importantly, the Windows Phone operating system itself needs to evolve. The tile-based interface is OK, but I'd like to see much more active tiles and much tighter integration of the underlying services. Nokia's Here line of maps and similar services is fine but it hasn't been as strong as Google Maps, at least in the United States where I've tried it. Microsoft's voice recognition is respectable but doesn't have the personality or integration with other features that make Apple's Siri or Google Now more interesting. And there are still too many missing applications. As I wrote recently, Microsoft is closing the gap on the most important apps, but Windows Phone versions typically come out months after iPhone and Android versions, and sometimes have fewer features. Windows Phone must move faster with new releases and new features on a more frequent basis just to continue to garner attention.

For Nokia, there's still the question of whether the company made the right decision by betting on Windows Phone back in 2011. The company's share of the mobile phone market, and the smartphone market in particular, was declining then, but has since slipped even more. Even so, sales of the Lumia Windows Phone line have increased and Nokia remains the second-largest seller of mobile phones overall, behind Samsung. What's left of Nokia after spinning out mobile phones to Microsoft is a maker of network equipment for carriers, a shadow of what the company used to be. Microsoft will continue to license the Nokia name for use on phones for 10 years.

For Microsoft, it transforms the company's business model to make it more like Apple, which produces hardware and software, and less like the traditional OS supplier to all comers, like Microsoft's traditional Windows business or Google's Android model (excepting the Motorola relationship). That's a big risk, especially when it looks like the open OS model is again proving more successful in creating the larger ecosystem.

In short, there are a lot of risks here. If it all works well, we could end up with a third strong mobile ecosystem and that's good for consumers because it would likely lead to more innovation in the market. For that to happen though, the Nokia phone group and the Windows Phone group will have to work more cohesively and move faster than they have individually to anticipate the needs and desires of mobile phone buyers going forward. That's a tall order.

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